EARLY ADOPTION OF ACCOUNTING STANDARDS IN THE BANKING INDUSTRY BY

I investigate whether U.S. bank holding companies choose early adoption of accounting standards to better access external financing. Both economic intuition and theories suggest that banks are motivated to take measures such as information disclosure to better access capital markets. Examining accounting standards from January 1995 to March 2008 that allowed for early adoption, I find that banks with lower profitability and higher risk profiles are more likely to choose early adoption. This evidence is consistent with a bank’s incentive to better access external financing. In addition, the results suggest a counter-signaling effect of early-adoption decisions. I further find that banks are more likely to choose early adoption for the purpose of having better access to external financing when the income effects of accounting standards are ex ante undetermined or when only disclosures are required. I provide evidence that banks vary their early-adoption decisions according to several accounting standard characteristics, such as the income effects of accounting standards, standard type (financial versus non-financial), and standard complexity. Finally, early adopters generally experience higher fund growth than matched late adopters during economic expansions when banks are most motivated to attract more funds. ii